In an effort to restore investor confidence, the Capital Markets Authority (CMA) has published a new raft of rules that require fund managers to provide more disclosures.
This follows legal battles between CMA and certain asset management firms after retail investors lost cash after the collapse of several funds that have sold commercial paper, and other debt instruments.
CMA fresh guidelines now require fund managers to use a standardized template while providing more details about the value of the assets they manage, how these funds are performing, and how the fund makes its reporting to the Authority.
These new guidelines will involve the publication of more specific performance metrics for individual Collective Investment Schemes (CIS), a shift from a more generalized format currently in use.
CIS are pools of funds that are managed on behalf of investors by a professional money manager. They include Unit Trusts, Mutual Funds, and Employee Share Ownership Plans (ESOPs). Funds collected from investors are pooled, and the manager uses this money to buy stock, bonds, or other securities according to the scheme’s specific investment objective. Returns from this activity are profits, income, or property that accrues to investors.
These draft regulations affect fund managers of institutional funds such as pension and insurance funds, the wealth of high net worth individuals, and the independent funds, all grouped under collective investment schemes.
These draft rules cover valuation, investment performance measurement, reporting, and other related matters of CISs.
An attempt by CMA to intensify the fund managers’ surveillance follows recent instances where investors have lost huge amounts of cash following the closure of Nakumatt Supermarkets, Athi River Mining, Chase Bank, and Imperial Bank.
In the case of Amana Capital, investors could not withdraw their funds after investing KSh275 million, up to 20% of the scheme’s assets in collapsed Nakumatt.
These draft CMA guidelines now require fund managers to show how they invest the cash in their custody, do financial reporting, advertise and value their portfolios. They also require fund managers to establish comprehensive and documented investment policies to govern how assets held by the scheme are valued.
The methodologies used to value each asset type should also be clearly spelt in addition to how their performance is calculated and presented.
In addition to the existing reporting obligations, the fund manager shall prepare and submit to the Authority a quarterly performance measurement report. This report shall be submitted within 21 days after the end of each quarter and shall be made available to all existing and prospective clients.
The performance measurement report shall include updated performance and performance-related information (on general areas of investment for the selected fund), including the correction of material errors.
Available data lists the top 10 Fund managers as CIC Asset Management, Britam Asset Management, ICEA Lion Asset Management, Old Mutual Fund Management, Alpha Africa Fund Management, African Alliance Kenya Investment Bank, Sanlam Investments, Madison Asset Management, Apollo Fund Management, and Amana Capital Limited.
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